XXXXXX XXXXXX wrote:
Below is the result of your feedback form. It was submitted by
XXXXXX XXXXXX on Friday, July 17, 2009 at 16:14:53
question: I was a Canadian working in the US under a TN Visa. I purchased property in the US and would like to know if I am eligible to deduct the mortgage interest from my American mortgage from my American income.
david ingram replies:
The answer is an absolute YES.
Even if you were in the USA without a visa and working illegally, you would be entitled to claim the mortgage interest and property taxes on your US home on your US income tax return.
If you were in the USA and had a mortgage on a ski cabin at Whistler or a waterfront summer camp on Lake Winnipeg at Gimli or a Pied-à-Terre in downtown Toronto or a family retreat on PEI or a sailboat or a Rec Vehicle in France, the interest is deductible on line 10 or line 11 of Schedule A of your US return. The US allows the interest on an RV or boat as long as it has cooking and sleeping facilities so even a fold out tent camper can qualify. If you received a 1088 to report the interest paid (you should have for your US house) put it on line 10 of schedule A. If the property is / was out of the country and you do not have a 1088 for the interest (also the case with many RV loans if you do not ask for it), then the amount goes on line 11 of schedule A.
The good news is that if you missed this for three or maybe even four years right now, you can file a 1040X and claim it backwards.
To change, you have to get that 1040X in within three years of the assessment. Therefore, you can for sure do 2008, 2007 and 2006. If 2005 as not assessed until sept 1, 2006, you would still have time to file and amend 2005.
And, if you were 2 years late filing 2004, it could still be claimed.
Remember also, that if you were in the USA on a TN, H1, L1, O1, or P1, you are taxable in the USA on your world income. That means that you need to report any Canadian (or French or Indonesian, etc.) interest, rents, dividends, royalties, family farm income, etc. on your 1040 AND your state return.
Renting out that Whistler or Gimli cabin or the motorhome through GO WEST camping or the sailboat through SEA WING has to be reported in both countries.
If you were renting the Whistler cabin, you should
1. have filed form NR6 http://www.cra-arc.gc.ca/E/pbg/tf/nr6/nr6-06e.pdf by Dec 31st each year with the Canadian Government - this form appoints a Canadian Agent
2. Your Agent should have filed Canadian form NR4 http://www.cra-arc.gc.ca/E/pbg/tf/nr4_flat/nr4flat-fill-08b.pdf by March 31st of each following year - i.e. March 31, 2009 for the 2008 tax year
3. You need to file Canadian forms T1159 - http://www.cra-arc.gc.ca/E/pbg/tf/t1159/t1159-08e.pdf and T776 http://www.cra-arc.gc.ca/E/pbg/tf/t776/t776-fill-07e.pdf with the CRA by June 30th (for the previous year) under Sec 216(4) or big penalties
4. You need to report the rent to the US on schedule E http://www.irs.gov/pub/irs-pdf/f1040se.pdf and Schedule 4562 http://www.irs.gov/pub/irs-pdf/f4562.pdf
by April 15. Of course, if you file US form 4868, the due date is automatically changed to Oct 15 which is my recommendation for most two country returns with a rental.
Canada's penalty for failure to file Forms T1159 and T776 on time is 25% of the Gross rent with no expenses allowed. as a matter of policy, the CRA allows these to be late ONE time. I have NEVER had anyone penalized the first time with catch-up returns. However, if "THEY" catch you, the penalty is imposed and it can be very big with interest added.
In reverse, US penalties can be bigger. Their minimum penalty is 30% of the gross rent with no expenses allowed.
In addition, if there are Canadian Financial accounts involved, the minimum penalty is now $10,000 per year. See questions 7 and 8 on the bottom of Schedule B of the 1040. I have to say here that it is rare for a US tax preparer to pay any attention to question 7 even when their client is from France or Germany or Canada. We just corrected 5 years of returns for a lady from Germany who had a well known firm prepare her last five years of US and California returns. She swore to me that the company had not even asked her question 7 or 8 even though they knew she was from Germany and had lived in Canada (still has her Valid Canadian PR card because she is living in the US with a Canadian citizen husband).
Because she had $27,000 in a Canadian RRSP (her husband had them as well), she had to answer yes to question 7 and yes to question 8. A Canadian RRSP "is" a Foreign Trust as far as the IRS is concerned. The good news was /is that she did not have to fill in form 3520. Canadian RRSP, LIF and RRIF accounts can be dealt with be form 8891 http://www.irs.gov/pub/irs-pdf/f8891.pdf.
The question 7 reply requires form TD F 90-22.1 http://www.irs.gov/pub/irs-pdf/f90221.pdf
I do not know but believe that the TD F stands for Treasury Department Foreign (form) 90-22.1 and yes, there are a LOT of them.
Hope this helps. Remember, that this is what WE do. We look after people in your situation and specialize in 'catch-up' returns. You can send your paperwork by fax, email, snail mail, courier or in person if you happen to be within driving distance. While answering this question (which has taken place over about 16 hours as I came and went), I have had a US return to be prepared arrive by email from Australia, a call from Mexico from Canadians wanting to know how to immigrate to Mexico, a call from a citizen of India wanting a working visa for the US, and a Swede (in Canada as a visitor) wanting to find out how to move to Canada. I also had three phone calls from Canadians who have lost their US jobs with the massive lay-offs and had to return to Canada leaving their houses behind to sell in this horribly depressed market. I have had a couple of hundred of these calls in the last four months. Most seem to be losing enough in their houses that they have worked in the US for five to ten years for nothing.
The lucky ones are the people who kept their homes in Canada and are at least returning to something without having to re-establish themselves, get a new mortgage, etc.
Another unexpected penalty you may be subject to from Canada is a $2,500 penalty (plus interest from April 30th of the year after you left) for failure to file form T1161 with the CRA. This form must be filed with the departing Canada return for the year you moved to the US with a green card, TN, H1, H2, O1, L1, P1 visa etc.. This is a listing of everything you owned when you left the country and is used as the start of calculating Canadian Departure Tax. see it at http://www.cra-arc.gc.ca/E/pbg/tf/t1161/t1161-08e.pdf
These older Questions might help as well
capital gain tax on personal residence when leaving - T1161, T1243 T1244 - T2062 T2062A -
Tuesday, August 12 2008 @ 05:48 PM PDT
david ingram replies:
In the year that one leaves Canada to live in Germany, Australia, Panama, the United States or any other of the approximately 254 countries out there, that person must fill in a departing Canada tax return which will include:
* form T1161 - http://www.cra-arc.gc.ca/E/pbg/tf/t1161/t1161-07-e.pdf (List of properties by emigrant)
and maybe T1243 - http://www.cra-arc.gc.ca/E/pbg/tf/t1243/t1243-08e.pdf (Deemed Disposition of a Property by an Emigrant)
and T1244 - http://www.cra-arc.gc.ca/E/pbg/tf/t1244/t1244-07e.pdf ( ELECTION, UNDER SUBSECTION 220(4.5) OF THE INCOME TAX ACT, TO DEFER THE PAYMENT OF TAX
ON INCOME RELATING TO THE DEEMED DISPOSITION OF PROPERTY by an emigrant)
if there was any capital property which caused a capital gains tax to be paid on a deemed disposal.
Your friends moving to Germany may have tax on other items they own such as mutual funds or a stock portfolio but in the normal course of events will not have to pay capital gains tax because the house you live in is usually your principal residence and its sale is tax free as long as they are a resident of Canada.
If they have left Canada before they actually sell the house, they will likely run into a paperwork tangle and have to file forms T2062 - http://www.cra-arc.gc.ca/E/pbg/tf/t2062/t2062-08e.pdf ( REQUEST BY A NON-RESIDENT OF CANADA FOR A CERTIFICATE OF COMPLIANCE RELATED TO THE DISPOSITION OF TAXABLE CANADIAN PROPERTY) and a
T2062A - http://www.cra-arc.gc.ca/E/pbg/tf/t2062a/README.html (Request by a Non-resident of Canada for a Certificate of Compliance Related to the Disposition of Canadian Resource or Timber Resource Property, Canadian Real Property (Other Than Capital Property), or Depreciable Taxable Canadian Property )
These two forms are filled out to stop the purchaser having to withhold 25% of the gross sale price and remit it to the CRA.
The same situation applies to you in your move to the USA.
these other questions may assist you as well
Hi David,I am in the US for a 6 month contract making $72/h in Boston, MA.I understand that for CCRA I am a "resident" even if I stay here for more than 6 mo (I own a house in Toronto, have an RRSP).I am here on a 1099. How can I minimize the amount of tax paid in the US and Canada? A co-worker told me that I have to pay tax quarterly in the US and I want to deduct my rent and utilities.What is your fee for filing my taxes at the end of the year?Thanks,
david ingram replies:
The # 1 rule for a TN is that you can NOT be self-employed for the purposes of US Immigration.
Income Tax Does allow you to deduct necessary expenses but from your description, your rent and utilities would not be deductible because it seems that you moved to Boston to take the job. If you were already working in New York and your New York Employer sent you to Boston for six months and you kept your home in New York, then temporary expenses for up to a year are deductible.
However, in the case you describe, You may be living in Toronto but you took a job in Boston working for whomever obtained your TN for you. By paying you on a 1099, that employer has saved themselves about 10% in payroll expenses because they are not paying FICA, Medicare, Employment Insurance and other benefits.
You are actually "BY LAW" an employee without benefits. If you chose to be paid on a 1099 basis, you have likely cost yourself a lot of money unless your employer grossed up your pay by what they would usually have to pay for payroll benefits.
Remember, your TN visa only allows you to work for 'that' employer.
If you wanted to do something for someone else, you would have to get another TN visa for that company. It is possible to have half a dozen TN visas at the same time but you ARE an EMPLOYEE of each one.
This will NOT be what you want to hear.
In the meantime, you will have to file a 1040 DUAL Status return with a schedule C and pay both halves of the FICA as well as Federal Tax and MA state tax and Boston.
At the moment, I am quoting $900 to $3,000 - You can find a better understanding of my pricing further down.
Are you sure you are not the person who wrote this other question?
I have been working for a US employer with TN visa for more than a year. Now I just registered my only small business in Boston area and will have my first customer for consulting service.
1. --Am I illegal to work as self employed while keeping my TN status by working with my employer?
2. --Do I need a work authorization for me to work for myself since I know I have to have a specific TN visa for every and each employer.
3. --If the aboves do not work, do I have an alternative way to continue my business while working and living in US under TN status, such as doing the self employed business using my company registered in Ontario Canada?
Your answers are appreciated.
david ingram replies;
1. What you have set up is totally illegal and will provide Homeland Security with wonderful documentary evidence that you were working illegally when someone complains and Homeland Security is arresting you prior to deporting you.
2. Yes, you need an E2 or E5 visa if you want to work for yourself. The E-5 requires a $500,000 to $1,000,000 investment and you have to create jobs for and hire 10 full time employees who are NOT related to you. Its advantage is that it gives you an instant green card. The E-2 requires a much smaller investment (maybe as low as $35,000) but has the disadvantage that one of the terms is that you can NOT get a green card with it.
3. Not with a Canadian company if you are working in the US. AND, if you have a Canadian corporation, be aware that you need to file US form 5471 when a taxable resident of the US with 10% or more ownership of a foreign company in any country, Canada, China, India, Pakistan, Spain, etc, etc. Look up the form AND instructions at www.irs.gov. read the penalty for failure to file in the instructions.
4. However, all is not lost. You CAN have MORE than one TN as you seem to realize. I have seen eight issued in the same year for the same person for eight different US employers for consulting and or engineering jobs. However, you MUST be an employee (part time is fine) of each person paying you because one of the terms of the TN visa is that you can NOT be self employed. And, a;though it seems a contradiction, you can be paid on a 1099 basis which just means that you are an employee without benefits.
CEN-TA Cross Border Services - Tax, Visas, Immigration